Dr. Reddy's Laboratories Limited (RDY) Q2 2026 Earnings Report, Transcript and Summary

Good day, and welcome our quarter 2 fiscal year 2026 [indiscernible] Limited. I'm Aishwarya Sitharam and I'm part of the Dr. Reddy's Investor Relations team. [Operator Instructions] I now hand over the conference to Richa Periwal.

Thanks, Aishwarya. Good morning, good evening, and a warm welcome to all. We hope you had a joyful and safe Diwali celebrations with your loved ones. Thank you for joining us for Dr. Reddy's Laboratories Q2 FY '26 Earnings Conference Call. We truly value your time and participation. Joining us today are members of the leadership team. Mr. Erez Israeli, CEO; Mr. MVN, our CFO; and the Investor Relations team. Earlier today, we released our quarterly financial results. These are now available on your website for your reference. We will begin today's session with MVN providing an overview of our financial performance for the quarter. Following that, Erez will share his insights on key business highlights and our strategic outlook. We will then open the floor for questions. Before we proceed, please note that this call is the proprietary material of Dr. Reddy's Laboratories and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company. This session is being recorded, and both the audio and the transcript will be made available on our website shortly. All commentary and analysis during this call are based on our IFRS consolidated financial statements. Please note that certain non-GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release. Finally, a reminder that the safe harbor provisions outlined in today's press release apply to all forward-looking statements made during the call. With that, let me now hand it over to MVN to present the financial highlights for the quarter. Over to you, MVN.

Thank you, Richa, and Aishwarya, good evening, and a warm welcome to all. Thank you for joining us on our Q2 FY '26 earnings call. I'm delighted to take you through our financial performance for the quarter. We delivered a steady performance in Q2, achieving near double-digit growth despite lower lenalidomide renamed sales. The acquired consumer health care business supported the top line momentum. EBITDA margin stood at 26.7% for the quarter. All financial figures in this section are translated into U.S. dollars using a convenience translation rate of INR 88.78, the exchange rate prevailing as of September 30, 2025. Consolidated revenue for the quarter stood at INR 8,805 crores which is USD 992 million, a growth of 9.8% year-over-year and 3% on sequential basis. While U.S generics faced product specific price erosion and lower lenalidomide sales, overall growth was supported by the integration of consumer health care business and double-digit growth delivery across other markets aided by favorable ForEx. Consolidated gross profit margin for the quarter was 54.7%, a decrease of 492 basis points year-over-year and 223 basis points sequentially. The decrease in margins during the quarter was due to lower lenalidomide sales and product-specific price erosion in the U.S. generics. Onetime inventory provisions from the discontinuation of the certain pipeline products due to technical challenges in the lower operating leverage in PSAI business. Gross margin was 59.1% for global generics and 18% for PSAI. The SG&A spend for the quarter was INR 2,644 crores, which is USD 298 million, an increase of 15% on year-over-year and 3% on a sequential basis. The year-over-year increase was primarily driven by focused investments in the acquired NRT consumer healthcare business and in branded generics, which are key to driving sustainable growth. SG&A for the quarter includes a onetime provision of INR 70 crores for a VAT liability in one of our subsidiaries and charges related to a discontinued pipeline product. SG&A spend accounted for 30% of revenues during the quarter and was higher by 132 basis points year-over-year and similar levels on a sequential basis. Excluding the one-offs related to VAT provision, SG&A expense as a percentage of revenues was at 29.2% in Q2 FY '26. The R&D spend for the quarter was INR 620 crores, which is USD 70 million, a decline of 15% year-over-year. And broadly, flat sequentially. The decrease was due to reduced development spend on biosimilars during the quarter as major investments for abatacept have already been completed. We continue to make focused R&D investments in complex generics, APIs and biosimilar pipeline while pursuing strategic collaborations to bring innovative assets that support sustainable long-term growth. The R&D spend was 7% of revenues for the quarter, lower by 203 basis points year-over-year and 26 basis points on a sequential basis. Other operating income for the quarter was INR 267 crores, higher than INR 98 crores in the corresponding quarter last year. This was mainly on account of product-related IP settlement income in the United States and onetime reversal of INR 88 crores in liabilities related to discontinuation of the pipeline product. EBITDA for the quarter, inclusive of other income, stood at INR 2,351 crores, which is USD 265 million, an increase of 3% on year-over-year and a sequential basis. The EBITDA margin stood at 26.7%, lowered by 174 basis points on year-over-year and flat sequentially. Adjusting for the onetime VAT provision mentioned earlier, the underlying EBITDA margin was at 27.5%. Impairment charge was INR 66 crores, including INR 54 crores for property, plant and equipment at our Middleburgh facility following the discontinuation of the pipeline product, conjugated estrogen. The remaining charge pertains to product related to intangibles impacted by adverse market conditions. The net finance income for the quarter was lower at INR 77 crores as compared to INR 156 crores for the same quarter last year. The decline in net finance income reflects lower returns from financial investment following the deployment of cash reserves towards acquisition of consumer health care business and other intangible assets in line with our capital allocation strategy. As a result, profit before tax for the quarter stood at INR 1,835 crores, that is USD 207 million. PBT as a percentage revenues was at 20.8% on an adjusted basis, excluding the onetime VAT provision, the PBT margin was at 21.6%. The effective tax rate for the quarter was at 22.2% compared to 30% in the corresponding period last year. The ETR for Q2 FY '26 was lower primarily due to favorable jurisdictional mix for the quarter. The ETR in the corresponding period last year was higher due to reversal of previously recognized deferred tax assets related to land indexation following amendments introduced through the Finance Act 2024 to Income-Tax Act 1961. Profit after tax attributable to the equity holders of the parent for the quarter stood at INR 1,437 crores, which is USD 162 million, a growth of 14% on a year-over-year, flat on Q-o-Q basis. This is at 16.3% of revenues, Diluted EPS for the quarter is INR 17.25. Operating working capital as of 30th September 2025 was INR 13,331 crores, which is in USD 1.5 billion, an increase of INR 3 crores, which is like USD 0.4 million over 30th June 2025. CapEx cash outflow for the quarter stood at INR 511 crores, which is INR 58 million. Free cash flow generated during the quarter was INR 1,046 crores, which is USD 118 million. As of September 30, we have a net cash surplus of INR 2,751 crores, which is like USD 310 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 502 million hedged using combination of forward structured derivative contracts scheduled to mature through December 2026. These contracts are hedged at the rate of INR 86.9 per U.S. dollar, RUB 4.28 billion hedged at a fixed rate of 1.03 per Russian ruble with maturity falling within next 4 months. With this, I request Erez to take us through the...

Thank you, MVN. Good day, everyone, and thank you for joining us today. We are pleased to report a consistent performance in Q2 FY '26, marked by a double-digit growth and steady profitability. This performance was driven by contributions across all key markets except for the U.S. generic business. During the quarter, we continued to make a meaningful progress across our strategic priorities namely growing the base, scaling our presence in consumer health care, innovative therapies and biosimilars. We advanced our key pipeline programs, including semaglutide and abatacept. In addition, we have been driving initiatives to enhance cost efficiencies across our operations while simultaneously pursuing business development activity to support sustainable growth in the coming quarters. Let me now walk you through some of the key highlights of the quarter. Revenue grew by 10% year-on-year driven by broad-based growth across businesses, benefiting from acquired consumer health care and supported by a favorable ForEx. Growth was partially offset by lower contribution from lenalidomide and some price erosion in the U.S. in some select products. The EBITDA margin stood at 26.7%. The ROCE for the quarter was around 22%. The cash flow from operation was utilized to our plant expansions and acquisition of strategic brands and securing rights for distribution in defined markets. We closed the quarter with net cash surplus of $310 million reinforcing the strength of our balance sheet. We strengthened our innovation-led portfolio to strategic collaboration and launches. We entered the anti-vertigo segment with the acquisition of Stugeron and related brands across 18 markets in APAC and EMEA from Janssen Pharmaceutica. In India, we strengthened our gastrointestinal portfolio with the launch of 2 novel drugs tegoprazan under the brand name of PCAB and linaclotide under the brand name of Colozo. In partnership with Unitaid, Clinton Health Access Initiative & Wits RHI, we are working to make lenacapavir, a long-acting HIV prevention tool accessible and affordable in low and middle-income countries. We continue to make progress on our key pipeline products. The Subject Expert Committee, the SEC under Central Drug Standard Control Organization has recommended approval for semaglutide injection in India. We received a positive opinion from European Medicines Agency Committee for medicinal products for human use for denosumab biosimilar candidate. The U.S. FDA accepted our investigational new drug's IND application for COYA 302, a partner novel drug for the treatment patients with ALS. We also made a steady progress on integrating the acquired nicotine replacement therapy business. We have successfully integrated 2/3 of the business by value, including Canada, Australia and selected key Western European markets. The next phase will include Southern Europe, Israel and Taiwan. On the regulatory front, several inspections were completed across our global facilities. In September 2025, the U.S. FDA conducted a pre-approval inspection on our Bachupally biologics facility and issued a Form 483 with 5 observations. The agency recently issued a complete response letter in reference to the ongoing resolution of observation pertaining to the biologic license application, the BLA of our rituximab biosimilar candidate. We are actively working to address these observations. The U.S. FDA conclude a GMP inspection at our Mirfield API facility in the U.K., resulting in issuing a Form 483 containing 7 observations. Additionally, our API site CTO-5 in Miryalaguda, in Telangana as well as our Middleburgh facility in New York were classified as VAI following successful GMP inspection by the U.S. FDA. The GMP and pre-approval inspection PAI conducted by the U.S. FDA in July 2025, at our formulation manufacturing facility, FTO-11 has been formally closed. We have received the EIR establishment inspection report with the inspection outcome categorized as VAI. We continue to be recognized for our industry-leading performance in sustainability. We retained our MSCI ESG Rating for A for the second consecutive year. Our ESG Risk Rating from Morningstar Sustainalytics improved from 23.6% to 18.4%, representing a lower ESG risk profile. Our waste management practices were recognized with the Diamond Standard for achieving 99.9% of waste diversion from landfills. Further our formulation facilities at Srikakulam FTO-11 became India's first pharmaceutical facility to receive a Leadership in Energy and Environmental Design, Platinum Certification for existing buildings from U.S. Green Building Council. Let me take -- let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in their respective local currencies. Our North American generic business generated revenues of $373 million for the quarter, a decline of 16% year-on-year and 7% sequentially. The performance was impacted by price erosion in selected key products, primarily lenalidomide. During the quarter, we launched 7 new products and expect launch momentum to continue in the second half of the fiscal. Our European business reported revenue of $135 million for the quarter, growth of 150% on a year-to-year basis and 3% on quarter-on-quarter. The year-on-year performance was primarily driven by contribution from the acquired nicotine replacement therapy portfolio and new product launches, which offset the price erosion pressure -- the pricing pressure. Excluding the NRT, the growth was 6% year-on-year and quarter-on-quarter. During the quarter, we launched 8 new generic products across European markets, further strengthening our portfolio. Our emerging market business delivered revenue of INR 1,655 crores in Q2 reflecting a growth of 14% year-on-year and 18% sequentially. Growth was primarily driven by new product launches across markets and aided by favorable ForEx. During the quarter, we introduced 24 new products across multiple countries, reinforcing our commitment to expanding access and strengthening our market presence. Within this segment, our Russia business delivered a growth of 13% year-on-year and 18% sequentially in constant currency terms despite prevailing macroeconomic challenges. Our India business reported revenues of INR 1,578 crores in Q2, delivering a double-digit year-on-year growth of 13% and 7% increase sequentially. This performance was driven by contribution from new product launches, improved pricing and higher volumes. According to IQVIA, we have moved up one place to the 9th position in India pharmaceutical market for the month of September and continued to outpace market growth. With moving annual total MAT growth of 9.4% compared to IPM 7.8% growth. During the quarter, we launched 11 new brands in addition to the acquired Stugeron portfolio, further strengthening our domestic franchise. Our PSAI business reported revenue of $108 million in Q2 FY '26, registering growth of 8% year-over-year and 13% sequentially. During the quarter, we filed 37 Drug Master Files globally. We have further sharpened our R&D focus on programs that offer clear differentiation and strong commercial potential in alignment with our strategic priorities. We have rationalized few pipeline products that face extended regulatory uncertainty limited market opportunity or increasing competitive intensity. Our focus is anchored around company generic GLP-1 molecules and biosimilar. In addition, we are actively pursuing strategic collaboration and partnership to enhance our innovation ecosystem, accelerate development time lines and expand our capabilities in emerging therapeutic areas. During the quarter, we completed 43 global generic filings. For the quarters ahead, we are focused on robust execution to deliver on our strategic priority, meaning grow our base business, focus on our key pipeline assets like semaglutide and abatacept improving operational efficiency and productivity across the value chain. And we continue to actively explore partnership and value-accretive acquisitions that support our strategic vision and innovation momentum while enhancing our capabilities. These efforts are aimed to driving sustainable growth and delivering long-term value for our stakeholders. And with that, I will welcome your thoughts and questions as we move into the Q&A session.

[Operator Instructions] The first question is from the line of Neha Manpuria from Bank of America.

My first question is on the U.S. business. While I know you talked about product specific erosion and REVLIMID quarter-on-quarter. One, should we expect any REVLIMID all in the third quarter? And second question on the U.S. business. You've seen a product discontinuation this year. Last year, we saw NuvaRing being discontinued. You continue to spend a fair bit on R&D. How should we think about the U.S. product pipeline? Because if I look at Reddy's approval history while we have got a fair bit of approvals, we haven't really got any meaningful large launch approval outside of REVLIMID and probably Vascepa was the last one that I can think about. So I just wanted your thoughts on how we should look at some of these more meaningful launches coming through now that conjugated estrogen has been discontinued. How do you think about the U.S. growth.

So just, Neha, I think there was some thing with the voice. Just the beginning of your question, I got the rest of it. Since the beginning of the question, I could not hear it, sorry about it.

Yes. No problem. I was asking that, is it fair to assume that there would be no REVLIMID limit in the third quarter? Or would we still see some bits of REVLIMID as a part of the settlement in the third quarter?

So we should assume that we will have and -- but less than what was in this quarter. So -- and likely that it's either going to be the last quarter or maybe some tail that will go into Q4. But by and large, Q3 will still have REVLIMID in it. On the R&D question, first, I agree with you. We -- there were certain products that we tried for a while to get an approval. And as we did not get, we kind of pull the trigger on them. We kind of gave ourselves a certain time lines that if we don't we just move on. As we speak, the main products in the United States as related to R&D will be the biosimilars. I think the main products in terms of significant growth in the United, which will be abatacept. On the small molecules, we do have meaningful products that are coming primarily peptides, long-acting peptides. Some of them we missed the first to file but they are still meaningful. The overall pipeline is about 100 products as we speak, we will tick in the pipeline. And out of that about, I would say, around 20 that will be considered what we call the complex generics. But as we discussed many times in the past, it's hard to predict on this product. So your observation is correct. What we absolutely did is that we're relooking our portfolio, and we are focusing on products that we believe that we have a good chance to be first to market as time will come.

Understood, Erez. Erez, if I were to just extend this question then to, let's say, a sema filing or abatacept filing. What gives you confidence on getting approvals on those filings? Even in case of abatacept, now that Bachupally, we have got a CRL on rituximab. I'm just wondering if -- I know there's always risk to approval, but how should we think about management's confidence in getting approval for sema in Canada or next year as we think about the abatacept?

So on abatacept, let's go with abatacept and I'll go to sema after. On abatacept, we are supposed to submit the BLA, and I'm very confident about it in the end of December of this year -- calendar year, end of end of December 2025, which is exactly the date that we aim to. Here, I have a high level of confidence. It's also important to us because it will open the door for us to launch also the subcu, which is the more important SKU at the beginning of 2028, subject to settlement, of course, of the IP. The confidence comes that we are not doing only with Bachupally but we increased the chance because we will have also for the United States, CMO that will make it, the product. I'm less concerned about the European approval because Bachupally was already approved by European, but not yet by the U.S. FDA. And also, in the case of the U.S., we don't yet know what will happen with the tariff on biologics, while we feel now more comfortable giving all the press that likely there will be no tariff. We need to see when the guidelines will come. But as a balance sheet, we don't know, and we felt the need to have a backup also there. So we will -- if we will not be able to launch from Bachupally we'll be able to launch from the United States. And this will enable us also a potential challenge, if will happen on tariff. On the sema, we are expecting the feedback from Health Canada in the next few weeks. It can be any day, but it can be within the next few weeks. And we know if we get that efficiency or not. I'm certain that we will launch all the 12 million pens that I discussed with you last time, obviously, if it will not be in Canada, it will be in other places. So the launch is going to happen. The question, of course, if we get a CRL or we'll get something in Canada, obviously, the pricing may be different. But I'm confident that we will sell the product. The question is which market they would come. Can I guarantee that we'll not get the CRL, though I cannot, I wish.

The next question is from the line of Damayanti Kerai from HSBC.

My first question is again on semaglutide. So Erez, can you remind us the legal status, which was underway in India, litigation with Novo on semaglutide?

Sure. We are challenging the patents in India. And it's in the -- currently in the High Court in Delhi. All the hearings were done, and we are waiting for the decision of the judge. We don't know exactly when she will submit her decisions. And likely that we ever will not like the decision will appeal. So likely that it will continue after but at this stage, the hearing are done, and we are waiting for the outcome of the decision of the judge.

Sure. And just to clarify, this outcome should not be impacting your plans in the ex-India market, right? The markets outside of India?

Depends what will be the decision of the judge. What we are seeking, we believe that the patent is invalid. And in any case, as we speak today, by the decision that was done in May, we are -- we can produce an export, not to do it in India but the court in the decision back in May on the -- allowed us to continue to make the product and to export it. In terms of -- in the current state, we can launch in India only at patent expiration, which is right now dated to March '26.

Okay. That's clear. My second question is going back to abatacept. So just clarifying earlier discussions. So did you mention you have a CMO in place to manufacture that product in case Bachupally takes some time to get the clearance from the FDA? Or what is the arrangement? Like what kind of risk mitigation strategies are in place?

Sure, correct. So we will have -- I did mention that we will have a CMO in the United States to produce abatacept, in addition to our capacity that is built in Bachupally, India and it's mitigating 3 risks.

Hello.

Can you hear me now?

Yes, I can hear you now.

Okay. I'm saying it's addressing 3 risks. One is in a case that it will be again, CRL or any regulatory challenges that we will be able to launch from already approved FDA sites in America. Second, if there will be any tariff or any other potential restriction or regulatory burden assets related to make or sell biosimilar in the United States. And number three, to increase capacity. It's allowing us more capacity in the case that we will get nice market share. So we're absolutely going with the CMO option in the United States.

Okay. That's helpful. And my last question is for semaglutide, I understand you're working on your in-house fill and finish capacity. So can you share the update on that project?

It's going on. It will not impact the launches in the next 12 months because by the time that we will have to submit and qualify it, it will be post approval in all the countries. So the -- working with the partner that we have today. This is the famous 12 million units that we discussed in the past. This is still relevant and maybe with some upside. But right now, I think we are about the same range. And this will happen with the current partners but we will have two cartridge lines in FTO-11. And this will be significantly expanded capacity to many, many more millions. But let's see that we -- let's say, in that respect, it can go to even up to $50 million but it's all theoretical at this stage. It will be relevant not for the next 12 months, but for the period after that.

The next question is from the line of Dr. Bino Pathiparampil from Elara Capital.

First question on the India market, India business. You had a strong growth in the quarter. Is there anything in particular that helped you? And was there any impact related to the GST disruption in the quarter?

Yes. So we manage well the GST. So the GST was not a significant obstacle for us. We manage that well. It's just execution of our strategy, the way we discussed it for many quarters. We identify the therapeutic areas that we want to focus on. And we made several inorganic moves to buy brands that allow us relevant access. So as well as licensing of innovative products. and just working well and it's likely to continue. We said all along that we believe that innovation will allow us to outpace the market, and we feel very, very comfortable now about that strategy. I think more and more people see that now.

Understood. You have recently done this acquisition of the Stugeron brand from Janssen. Can you give some idea about what sort of revenues does that business have in its acquired form.

So it's 100 plus in terms of size, something like that.

$100 million?

No, INR 100 Cr, this is in India.

In Delhi, in India.

Yes, India.

That is India. Okay.

Bino, India and emerging markets put together.

Is INR 100 Cr. And for that, if I'm right, you paid USD 15 million.

Correct.

Okay. Understood. And any benefit of that in the growth for the quarter is some 20 days of that part of India business?

Not much.

No, no, it was very...

Insignificant.

Yes. You can take it as no real impact.

Got it. And my last question on the margin outlook beyond REVLIMID. Of course, we keep asking this every quarter. But if you look at current quarter, even with lenalidomide, if we remove the other income from the EBITDA margin, it is below 23% and with lenalidomide further coming down in the next quarters, it may fall even further. So do you still fully stick that for full year FY '27, you will get back to 25% EBITDA margin?

I'm not sure how did you get to the 23%. I'm aware of 26.7%. But nevermind. Yes, absolutely. Lenalidomide is with higher margin, everybody knows that. And naturally, it's impacting and anticipating that we are discussing for 4 years. We knew exactly when Lena is going to go. And it's happening exactly as we discussed. We are addressing it with a lever that I mentioned, growing the base, contain the cost of BD and focus on these key products. I absolutely believe and I'm maintaining it that in the next 2 years we will absolutely get back to the growth and to the margins. The question is, what will be the journey in this point of time. The more sema we will have, the more growth we'll have, the more BD we'll have, we can actually do it much, much faster. So we are maintaining our commitment for the margins, we are maintaining our commitment for growth. The question is what will be the scenarios between sema, abatacept and BD primarily. And of course, because on the levers that we can control better, we are very confident that this is the base and the cost.

The next question is from the line of Saion Mukherjee from Nomura.

My first question is on the U.S.-based business. There has been a lot of price erosion over the last 3, 4 years since you have launched REVLIMID how is the base today versus, let's say, before REVLIMID? Is it up, down? If you can give some color so that we get a sense where we should assume the number post-REVLIMID?

Sure. So it went down. It went down primarily not so much on volume. There were some products, about I think 5 that faced competition and price erosion, and that's what took it down. It's not significantly down. Most of the decline that you see is lena, lenalidomide but if you want to compare, it is down.

And do you see it sort of stabilizing now from the current level? Or do you think there is scope for further price erosion. And if you can just give some color on the pricing dynamics in the U.S. at this point? Anything has changed?

No, no change. I think it's stabilized. And I believe that it stabilized also for a while. We saw the products here and there but yes, I don't foresee additional trends like that in the coming quarters. On the base products, the erosion that will be will be on some of the launch products, the products that we launched, those can still face erosion because not all of them, what we call exhausted their potential erosion but it's insignificant as we speak.

Okay. My second question is on sema, this $12 million that you mentioned, you feel confident about selling. So if not in Canada, where will this volume be absorbed in your view, which markets?

Sure. So we are going to either directly or to partners going to obtain approval in the next, let's say, 12 to 15 months in 87 countries, most of them are very small. The notable countries besides Canada will be India, Brazil, Turkey. And then we have partners that are selling in several countries of Latin America. So I cannot highlight a particular market and also in Asia. We have also B2B partners that also preparing their own launches, and we have partners on both the API as well as [indiscernible]. So I believe that the main markets that I mentioned can take, let's say, the lion's share of this quantity. Depends, of course, on the success and how -- and the date that we will actually launch. And the rest will be taken by the B2B parties. Also, the markets that I mentioned are divided to 2 types of countries. The COPP countries and the non-COPP countries. So it will be a certain sequence in which it will come to play. So far, and the demands that we have, we have already just the orders that we are discussing and gives me confidence that if the approvals will come that we'll be able to sell that, yes.

Erez, if I can just add, like this is for 2026. Now what about 2027, how does this 12 million move up in 2027 in your estimate?

So it can move up even to -- for sure to 15, but it can move up even further than that. It depends on the evolution of the product. and the qualification of FTO-11, which will significantly ramp up the capacity will be towards the second half of 2027. I'm talking about calendar not FY.

The next question is from the line of Madhav Marda from Fidelity International.

I wanted to understand a bit on the -- I think we've delivered double-digit growth in the ex-U.S. markets. Are we confident of maintaining this trajectory over the next 1 or 2 years? That's my first question.

Yes, very much.

Okay. And could you highlight any key drivers? Like do we have like new launches lined up, what can help that steady growth? Because India especially 13% was quite a good number, so ahead of market. So just wanted to understand what could drive it.

So each one of the markets, we have different drivers. So if you want, I can highlight the markets for you the main markets. In Europe, it's primarily a combination of the NRT business, the leverage of the U.S. portfolio in which the pipeline is coming up and the launch of biosimilar rituximab, denosumab and bevacizumab that we had in the U.K. In the case of India, it's obviously the -- it's primarily our inorganic move that we made on innovation and the acquisitions of brands that we did in addition to a normal growth that we had on the legacy pipeline. So I always mentioned that in India, our legacy pipeline will be like the market and what we are adding value is in the places in which we are bringing products better than the standard of care. This is the strategy and now that we are accumulating enough of those is starting to be shown. It took us, I say, I'm sure we all remember quite a few years to build that. In the emerging markets, it's primarily again leverage of the generic business, especially on injectable and oncology as well as biologics, all of our biologics is going to emerging markets. And in each one of them, we have SLA depends on the market, selective innovation that we also licensed as part of our deal with India. In the case of Russia, it's primarily our legacy brands as well as some licensing and acquisition that we made in Russia on both the OTC as well as the as the Rx. API is primarily the focus on peptides. And on both -- there is also a lot of demand for the peptides on the API side. I hope I covered the markets for you if I forgot something, please...

Make sense, and my second question is just on abatacept, you said we can submit the BLA by end of calendar year '25. So the Phase III trial, I'm assuming is complete now, and we're expecting sort of an update on that in terms of whether that's completed successfully? Or how should we think about the progress on the trial itself.

It should be completed very, very soon and so far so good.

Okay. Okay. Understood. Got it. And if you file on time and so basically, the approval will be in line with the expiry in early calendar year '27. That's how we should think about it.

That's the idea, yes.

The next question is from the line of Dr. Kunal Dhamesha from Macquarie Capital.

Just the first one on abatacept. So basically, the first filing that we'll do would be for IB version, right?

Correct.

And what kind of the further development, the subcutaneous version would require?

Can you repeat, sorry?

For the subcutaneous version what further developments...

There is another set of tests that allow us to submit the subcu, but it doesn't require additional study.

Okay. So no Phase III, but some form of characterization, et cetera.

Correct.

And the first filing that we'll do by December 2025. Would that include Bachupally as a manufacturing source or the CMO as a manufacturing source?

Bachupally. Bachupally will start. And the CMO will be a tech transfer from Bachupally.

Okay. Tech transfer from Bachupally. So then it might -- so Bachupally would be still the keystone for us in a way.

Yes. But in the United States, I absolutely building that we will be able to be, especially for the subcu, the CMO will be enabled as day 1 launch. The mitigation that we discussed before.

Sure. And the second one on semaglutide Canada. So basically, let's say, over the last -- since we talked in the earlier Q1 earnings call. Your expectation about the market formation, has that changed now on the day of patent expiry? Or how should we think about it given that there are more filers whose filings have been accepted by the regulatory authority in Canada?

No. So nothing changed, at least in my perspective, just to make sure that, that we are expecting in the market to be competitive. There will be multiple players. The question is just the day they will get approval. So it's all about that. That did not change. I believe that the market formation will be as expected. Will -- once there is an approval, there is an application for reimbursement. And according to the rules in Canada of the pricing, that's how the market will play. So nothing changed in the way I think the game will be played is now it's about obtaining approval and obtaining a good outcome from the litigation in India.

Sure. And lastly, on India for sema, when I look at -- we have basically conducted trial for Ozempic and Rybelsus. So does that enable us to launch the weight loss version, which is Wegovy generic as well?

For Wegovy we'll have to have an application by itself. We'll have to...

It would be a separate application?

It will be a separate.

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Sir, just on a steady, robust traction of biologics across European markets and Indian market, if you could just highlight how much has been the total biologic sales across different markets on an annualized basis to date.

I'm sorry, it's something and your voices is too low. Just to make sure you asked how our sales evolve in India and Europe, that's what they asked, the question is.

Biologic sales, cumulative biologic sales across different markets.

The market or us? I'm sorry.

Us. Our sales.

Yes. So we launched in Europe -- hopefully, I'm answering it correctly. We launched in the Europe bevacizumab and recently rituximab in multiple countries, and we will increase the numbers of the countries as time goes by. And this is after we got the approval, the recent approval for rituximab for Europe. In India and emerging markets, we were always there. So it is going well. The main program that we will launch in Europe will be denosumab and abatacept. This is the main pipeline. The same product, obviously, will be launched in India and emerging markets. But in India, we'll also have pembro as well as nivo. So that's right now the plans in those countries.

Got it, sir. And sir, with respect to rituximab, now that we are thinking of having a CMO, will that require let's say, at least the stability data from CMO side and hence maybe more time to sort of get through the regulatory process.

The CMO that I mentioned is for abatacept, primarily for the subcu and it will require a tech transfer as well as stability. But we believe that we will be able to be ready for the big quantities, which will be in the beginning of calendar '28. So we should be good by then.

Understood. And just lastly, on the PSAI segment, where there has been improvement in the gross margin quarter-over-quarter, while we are still lower than the historical gross margin but if you can just help understand in terms of the current gross margin and how to think about it over the next 1 to 2 years?

So we expect, I think, going forward, PSA gross margin range of 20% to 25%.

Compared to 15% currently, right?

No, this quarter is at 18%. And because I think here, based on the product mix and then I think leverage of the all the overheads and everywhere. I think the range you can expect then going forward, 20%, 25% PSA gross margin.

Got it. And you -- there was an earlier comment of peptide sales within PSA. So if you could quantify how much has that been?

We build a capacity of up to 800 kg. Naturally, we are not even close right now to this level and right now, it's very small but it will grow as it will come it.

The next question is from the Kunal Randeria from Axis Capital.

So firstly, I would like to understand how your R&D will take shape given that you're developing a few biosimilars like pembrolizumab and daratumumab and of your R&D budget, how much you would be earmarking for biosimilars and Aurigene. So basically, your non-generic business.

So just to clarify, daratumumab, we are not developing. It's a product that we license from Henlius from a Chinese company. Denosumab was developed by Alvotech, and we have a partnership with them. And so in that respect, the main products that are done internally is still abatacept that we basically finished the clinic of it. As you can see, the R&D is about 7% right now of the sales and likely that it will stay in this range for now.

Sure, sure. And secondly, again on semaglutide. So do you foresee a situation where the market may not turn out to be as favorable as you think in Canada because besides the number of filers, which are increasing by the day, there are perhaps risks. Let's say, from a compounding pharmacy, which is intending to enter Canada and even the innovator has seen volume pressure in several markets. So there might be a situation where they are aggressive on pricing. So -- is there a risk of the market deterioration?

First of all, I mentioned all along, I think that Canada market will be competitive with multiple players. So I also now in 33 years within pharmaceuticals, I learned not to forecast launch. I always mentioned that it can range from 0 to many, many millions of dollars. So -- but yes, the answer is I anticipate that Canada is going to be very, very competitive. I anticipate that Canada will be very, very competitive. As players will get an approval.

Right. And if I can, if you don't mind, ask is there -- I mean, any particular price erosion that we can see from the current levels, maybe 80%, 85% kind of price erosion that will eventually settle down to?

I have no clue. I wish I do.

[Operator Instructions] The next question is from the line of Vivek Agrawal from Citi.

My question is related to NRT and branded markets like India, EM. So the growth was quite decent across the board and it's really a commendable job. So just want to understand how to look at the investment that you are making behind these markets? Or are these are sustainable investments or, let's say, it can be cut down in future?

First of all, I don't think you see the investment in emerging markets. As we speak, we got the market in certain waves. And the markets that we did not get, we are still managed by Haleon, and we are paying them a fee for doing that for us. So naturally, as market is coming to us, the fee for Haleon is going. And therefore, it's -- the margins are going up because we don't need to pay them. And we are starting to invest in the market that we invest are the only markets that we've got the beginning, meaning U.K. and Scandinavia. So that's -- so we -- right now, my base is not yet -- it's absolutely not a steady state. We have 2 more waves to go and before we go. What I can tell that so far, it's exceeding our expectation both on the pace of growth as well as on the margin. In both cases, it's much better than what we presented internally when we approved the project. So it's a kind of a good start, I would call it.

I understand, Erez. And just a related question here. It's on OpEx basically. So on absolute basis, how we should look at the OpEx in FY '27. So can it continue to increase, let's say, from '26 level, maybe relatively at a lower pace? Or is there any possibility of absolute decline in OpEx, let's say, in '27 compared to FY '26.

So Vivek, if you look this quarter, we have at 30%. And then if you adjust the one-off, I think we are close to 29.1% at somewhere and then for any modeling, I think we'll be in the zone of like 28% to 30%.

The next question is from the line of Dr. Harith Ahamed from Avendus Spark.

Just on rituximab again. So given this is the second successful PAI and CRL that we've had, are there any specific challenges related to the speciality? I'm asking also because this is a biologics facility and our track record, otherwise on compliance has been quite excellent in recent years.

So there is nothing specific per se. We -- it's all obviously, as this is a sterile plant, we have -- we've got queries that are related to the nature of the site. We believe it's addressable. In a case that they will come with another set of questions. What we will do is that we will submit. We have an alternate line as a backup, which is FFF 2 that we feel that FFF 2 is a fill and finish or for those that are on the line. So we may need to move the product from 1 line to another in a case that it will not come well on the first one. So it's primarily related to the fact that the first line that we have FFF 1 is some of the design of it raised those queries and also last time we are addressing it. But if it will not work, we'll have to move to FFM 2. I'm not worried on the not getting approval. I'm certain that we get approval. Just to remind all of us, rituximab for us was deliberately chosen in order to start the regulatory process on time to make sure that by the time that abatacept will come, Bachupally will face those kind of stuff. And this is -- it's serving its purpose and hopefully, we can absorb it soon.

Okay. A quick one on tocilizumab biosimilar. It's been a while since we got an update on that one. Can you share the status of that program?

We don't -- we are not planning to have it as a global product. We will have it only for India.

Yes. And then one quick follow-up on the previous question. The cost reductions that we have alluded to in the past, 500, 600 basis points of reductions. Are these reflecting to a small extent in the first half numbers? Or should we wait for the coming quarters for this to actually show the numbers.

Yes, I believe so. You can see that despite the fact that Lena is going down. We are maintaining our reasonable numbers. So it's absolutely a reflection of those mitigations. Of course, the full force of it will come as quarters will come. And we have also shared the numbers. So we believe that with SG&A of around 28% and R&D of around 7%. It comes to the famous 5% to 7% that we set, and there is even opportunity for more if we need to. So we maintain that we will -- we are very, very sensitive to the margins. And naturally, we're discussing it every time, and we will absolutely be really disciplined on those.

[Operator Instructions] Next is Gautam from Leo Capital.

My question was on the GLP-1. Do you only plan to do fill and finish or do you also manufacture API drug substances. How much manufacturing capacity do you have? And which markets are we targeting for this?

So we have CTO-6 making the API. I mentioned that the overall potential of all the investments that we put can reach even 800 Kg but we are very, very far from this output at this stage. We've don't need also. Just that -- but we are preparing it not just for semaglutide, liraglutide but also for 40-something peptides that we identified and we are going to develop either by ourself or with the partners in the next coming years. So right now, we will have sufficient capacity for the demand that we'll have for the liraglutide, semaglutide in the submissions to the relevant authorities of all the peptides that will be of patents, including tirzepatide that will be obviously an R&D project but it's very important to submit it in relevant markets. And we are also making the product, we are planning to make it in FTO-11 and also with the partners. In general, the approach will be that we will have for every important product in-house capabilities as well as partnership capabilities for all kinds of risk mitigations.

Okay. So can you just like expand on the fill and finish also what's the capacity we have and the status on that and the markets we are supplying for that?

I think we discussed it. We have 12 million pens for the semaglutide with the partner. We can -- and we have 2 lines of cartridge that will be an FTO-11, they can reach even 50 million, but right now it's Theoretical. The cartridge lines are on the way and they will be assembled and will be ready, not for these 12 months but after.

The last question for today comes from Sumit Gupta from Centrum Capital.

Yes. So just one question on the Indian business. So sir, can you segregate the volume and price growth?

The volume and the price.

So Sumit, the price is like in the range of normal 5%, and then the balance growth is like mainly from the new products and volumes.

Okay. So going forward, like should we expect this to continue? Or can we expect any significant growth in volumes also?

You should expect to continue, we will have new products volume, and the price will be in that range that MVN shared with you.

Thank you. We reached the end of the call. I now hand the call over to Richa for the closing comments.

Thank you all for joining us today. We truly appreciate your continued interest in Dr. Reddy's Laboratories and the time you've taken to engage with our Q2 FY '26 results. If you have any further questions or need any additional information, please do not hesitate to contact the Investor Relations team. Have a great day. Stay safe and take care.

Thank you.